By Jad Chamseddine, CQ Roll Call
September 23, 2015 -- Senate Democrats are concerned that mergers among the five largest health insurers will narrow choices for consumers, a charge that the CEOs of the acquiring companies are downplaying as they try to focus on potential savings to policyholders.
The Senate Judiciary Antitrust, Competition Policy and Consumer Rights Subcommittee is investigating whether Aetna Inc.'s acquisition of Humana Inc. and Anthem Inc.'s purchase of Cigna Corp. would have harmful effects on an industry that has been consolidating for the past five years. Amy Klobuchar of Minnesota, the ranking Democrat, said in a hearing Tuesday that the U.S. "values competition" and referred to the Sherman Act of 1890 that prohibits anti-competitive actions by companies as the "Magna Carta of free enterprise."
"I want to make sure that these deals do not harm consumers by increasing premiums or reducing benefits," Klobuchar said.
Aetna CEO Mark T. Bertolini said his company would only supply 8 percent of the U.S. population with health care after completing its acquisition of Humana. He also rejected the notion that the health insurance market should scrutinized on a national level, saying "all health care is local, just like politics." Insurers have fought for years to keep regulation at the state, rather than federal, level.
Anthem CEO Joseph Swedish stressed that there has been a stream of new industry entrants and that health care, in general, is "locally consumed, and locally sold."
But Sen. Richard Blumenthal, D-Conn., a critic of the mergers, countered that "there is national politics and there is a national health care market, and that market is profoundly important for the Justice Department to review. My hope is that the Department of Justice will look at the national market and not just the local market, because insurance is not just local."
Bertolini and Swedish, who are usually rivals, both pushed back against lawmakers exploring the effectiveness of current regulation of the insurance industry. The executives painted a picture of a competitive industry, and their view on market concentration clashed with some of the witnesses.
American Hospital Association President Richard Pollack said the mergers should be of "extreme concern to consumers" and said 97 percent of the market for private Medicare coverage was concentrated. Leemore Dafny, a professor at the Northwestern University Kellogg School of Management and former Federal Trade Commission economist, said that "concentration is generally higher within local markets than in the nation as a whole."
George Slover, the policy counsel at Consumers Union, said the market concentration stems from high barriers of entry in the industry. "You need good provider networks to attract consumers, and you need a large pool of consumers to attract providers," Slover said, calling it a chicken-and-egg problem.
This conflicted with Bertolini's characterization that consumers had an average of 10 insurance plans to choose from and 28 competitors have entered the market in the past year.
Blumenthal also laid the blame on high barriers to enter the health insurance market. "There are powerful barriers to entry," he said. "I can't just start an insurance company that will have any hope of competing with the combined entity."
This skepticism over a competitive health insurance marketplace was shared by Sen. Al Franken, D-Minn., who questioned both CEOs on whether the savings announced as part of the merger would flow to consumers.
Republicans were less critical. Subcommittee Chairman Mike Lee, R-Utah, said "post-acquisition levels of concentration raise strong competitive concerns." But he steered away from blaming the merging parties, saying he was more interested in finding out why there was "rapid consolidation" in the health care industry. Lee, like Republican colleagues in the House Judiciary Committee, also questioned whether the 2010 health care law spurred the deals.
The merger is currently being reviewed by the Department of Justice, which on Sept. 18 issued a second request to Aetna and Humana over their combination, asking for more information to be provided and preventing them from merging their assets. These requests are rare and typically signal that the government is concerned about competition in a particular industry. Blumenthal asked the Justice Department in a letter this year, and again at the hearing, to review both Aetna's acquisition of Humana alongside Anthem's purchase of Cigna.